Trade marks: exhaustion of rights where ownership assigned

The European Court of Justice (ECJ) has ruled on a trade mark proprietor's right to sue for infringement for the importation into its territory of goods placed on the market by an assignee of rights in that mark in another EEA member state, where it is promoted as a single global mark.

Background

A trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the EU under that trade mark by the proprietor or with his consent (the exhaustion principle) (Article 7(1), Trade Marks Directive (2008/95/EC)) (Article 7(1)).

Facts

S was the owner of a large portfolio of registered trade marks containing the word Schweppes. It sold the rights relating to the Schweppes marks in 13 EU member states, including its UK rights, to C. S's subsidiary, O, retained its rights in Spain.

O brought infringement proceedings against R to prevent it from importing bottles of SCHWEPPES tonic water from the UK to Spain and selling them there. C had first marketed these bottles in the UK. S claimed to have no connection with C.

R argued that S had tacitly consented to the importation and marketing because of its legal and economic links with C in the course of their common exploitation of the sign Schweppes as a universal mark.

The Spanish court stayed the proceedings and referred to the ECJ on the exhaustion of rights in the context of close commercial relationships such as the one between C and S.

Decision

The ECJ ruled that Article 7(1) does not entitle a trade mark proprietor to oppose the import of identical goods bearing the same mark originating in another member state in which it has assigned that mark to a third party if, after the assignment:

The proprietor (acting alone or with the assignee) has actively and deliberately continued to promote the appearance or image of a single global trade mark, thereby generating or increasing confusion on the part of the public concerned as to the commercial origin of goods bearing that mark.

There are economic links between the proprietor and the assignee involving co-ordination of their commercial policies or an agreement to exercise joint control over the use of the mark, so that they can determine (either directly or indirectly) the goods to which the trade mark is affixed and control the quality of those goods.

Where a trade mark proprietor had assigned its rights in a particular territory, its rights and the assignee's rights might continue to independently fulfil its function of guaranteeing origin. That would not be the case if the assignor had (whether alone or in co-operation with the assignee) created or increased confusion on the part of the public as to origin by promoting the appearance or image of a single global trade mark. This conduct compromised or distorted the origin function and deprived the assignor of the right to cite protection of that function as grounds for opposing the import of identical goods bearing the same mark into its own territory. It was for the national court to assess whether this situation existed. However, merely continuing to evoke the historical geographical origin of the national parallel trade marks did not constitute a distortion or compromise of the origin function.

The ECJ also observed that if two parties co-ordinated their commercial policies or agreed to exercise joint control over the use of a mark, any marketing of trademarked goods by either of them must be deemed to have been with the consent of the other. If those parties were allowed to protect their territories against the parallel import of such goods, that would lead to a partitioning of national markets. This partitioning was not justified by the purpose of trade mark rights, nor was it necessary to preserve the origin function of the mark.

The ECJ acknowledged that it could be difficult for parallel traders to prove the existence of economic links, which were usually created by private arrangements and contracts. However, a trader could put forward evidence from which the court could infer such economic links.

Comment

The decision provides a useful summary of the law relating to exhaustion where the ownership of a mark is split between territories, and also provides further guidance on the meaning of consent in the context of trade mark exhaustion. The ECJ focused on the question of whether the trade mark proprietor has, in practice, retained any control over how, and on what quality of goods, the mark is used. In practice, any business that wishes to sell off part of its trade mark portfolio along territorial lines should carefully consider the potential effect of continued co-operation with the assignee, as this could lead to it being unable to prevent circulation throughout the EEA of goods placed on the market by that assignee.

The outcome of these proceedings will depend on whether the Spanish court finds on the facts sufficient compromise or distortion of the origin function of the mark, or sufficient co-ordination of or joint control over it.